Services plan shows Microsoft playing catch-up

Bill Gates touted Microsoft's new Live Software strategy as a "revolution" in how the industry views software. But the strategy is more an evolution of the firm's software as a service strategy - and an effort to catch up with current industry trends.

Live Software: revolution or evolution?

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Bill Gates touted Microsoft's new Live Software strategy as a "revolution" in how the industry views software. But the strategy is more an evolution of the firm's software as a service strategy - and an effort to catch up with current industry trends.

So say industry analysts, responding to an event in San Francisco on Tuesday at which the Microsoft chairman and chief software architect talked up the firm's plan to provide a series of web-based services branded with the names of popular Microsoft products.

The way it was presented on Tuesday, Live Software is a multifaceted plan that shows Microsoft making several moves. First, the company proved it understands the need to clarify its long-neglected software-as-a-service-strategy as many companies, including rival Google, are backing the trend in an attempt to rival Microsoft's dominance in desktop applications.

With its Windows Live and Office Live offerings, the company is giving its customers a taste of what is to come when it brings all of its software online sometime in the future, even if that is 15 years away, said Rob Enderle, principal analyst for the research firm Enderle Group.

"This is Microsoft moving toward offering [all of its] software as a service," Enderle said. "Microsoft will ease into it because it doesn't want to give up the product revenue before the services revenue can ramp up."

Windows Live - which allows users to build a personalised web portal that includes email, a new instant messaging client that includes collaborative technologies and more robust ways for sorting and maintaining contact information and enhanced local and internet search technology - also shows Microsoft playing catch-up with Yahoo to provide a comprehensive portal like MyYahoo where users can access web-based services that meet both consumer and business needs. Google also gives its users the option of personalising its home page with things such as news headlines, weather information and stock quotes.

Compelling technology

One thing Microsoft has over its competitors, however, is that Windows Live allows users to add local content and web services from their PCs to their personal start page, said Van Baker, a research vice-president at Gartner. "That's pretty compelling technology," he said. "It will be harder for Yahoo and Google to do because they don’t have access to the inner workings of the OS [operating system] as Microsoft does."

This kind of tie-in of online services and the OS shows that Microsoft is no longer going to be shy about using its most bankable product, Windows, to promote its online services in an effort to outsmart Google and other web services companies, said Rob Helm, director of research for Directions on Microsoft Inc.

"Microsoft never used Windows to drive business to online services," he said. "This announcement is a signal that it might be willing to rethink that and hook software more into online services."

Windows Live also calls into question the fate of Microsoft's MSN portal. Microsoft executives said that while MSN will continue to exist as a portal, current users of Hotmail and MSN email services will eventually be required to switch to the email service offered by Windows Live, in beta mode now here.

Analysts believe the overlap between what Windows Live will offer and what the MSN portal currently offers is great enough that Windows Live will eventually, for all intents and purposes, replace MSN as the portal for Microsoft's web-based services.

"My sense is that the development and marketing effort [of MSN] will go into Windows Live," Helm said. "The MSN brand will stick around but it seems like the machines, the people and the services will be there, but more and more of them will be called Windows Live."

In addition to taking on Google with web-based services, Microsoft also plans to try to beat the California search company at its own game by winning more online advertising revenue through Windows Live and Office Live, as well as by including its AdCenter advertising sales engine to a host of its products.

Microsoft, which currently has about 10 percent of the online advertising market, hopes to steal market share from Google, which has done an impressive job at showing how much money can be made through online advertising, Microsoft chief technical officer Ray Ozzie said at Tuesday's event.

Helm said Microsoft may not expect to make a ton of revenue itself through online advertising, but by going after that revenue, the software company might keep Google from growing. "Even if Microsoft can’t make money, the plan may well be to keep Google away from the resources it needs to expand," he said.

This may well be a difficult endeavour, however, as even Ozzie acknowledged on Tuesday that there is plenty of money to be made in online advertising, a market that is projected to grow to $150bn (£84.36bn) by 2050.

Lacklustre presentation

Analysts noted that while Microsoft's Live Software plan is ambitious, the company's presentation of its new strategy on Tuesday left much to be desired. Microsoft tried to cover too much ground in one event, they said, and the announcement of Live Software seemed hurried, as if the company was trying to quiet critics who wondered what Microsoft had up its sleeve to compete with the wildly successful Google.

Errors also plagued logistics. The event ran considerably over its planned two hours, and several product demos failed initially, leaving Ozzie to awkwardly fill dead air time while engineers corrected technical difficulties.

"It was Ray Ozzie’s coming-out party and it wasn’t a good one," Enderle said of the performance. "Ray really stumbled a lot. It was one of the most poorly executed events I've seen Microsoft do in years."

Microsoft is unlikely to be as ill-prepared when it comes to executing on its hosted software strategy over the next few years, something that analysts think will pick up in earnest after the launch of Windows Vista at the end of 2006.

But it remains to be seen exactly how far the company will go with its software as a service strategy, analysts said. Another thing made evident by Microsoft's tarnished performance on Tuesday is that even company executives may be unsure how long it will take to move customers, and the industry itself, from packaged software to Live Software.